Above: Facing the above with a truckload of money, led by a seasoned winner like Larry Ellison, prospects to hold the common have risen.
Premise: The Skydance deal for Para (NASDAQ:PARA) is effectively closed now after Bronfman waved the white flag. So if no internal black swan appears between now and the closing date next year, it is appropriate to open a discussion on what the merged company faces. Uncertainties and opportunities on its future.
For the past year the uncertainties attendant upon Para making big structural moves to better align its current business model with today’s new world of media have been mostly on the margins. There has been a nip here and a tuck there. More recently, Para has unloaded its convention event unit VidCon operation for $1.57b to a UK convention company. And there are continuing rumors that 12 of its non-CBS branded local TV stations will shortly be up on the block price tagged around $500m. A long-standing package, BET Media with its various wing operations, has been offered to a group led by BET’s current CEO Scott Mills for $1.67b.
These are deals Para did in the interregnum between Skydance’s first move nearly a year ago, and long before the gates of a Para newco will legally close mid- year next. And they’ve been all to the good in terms of beginning to build a fattened cash pile for Para before the first dollar of Skydance’s promised $1.5b infusion arrives. Before that, it’s tear-down time.
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While those transactions of marginal assets are great, consider that Para’s cash position just at Dec ’21 was: $6.27b. Long term net debt at writing is $14.6b a 3.5X leverage ratio, not very compelling for investors. By any measure, Para has burned through a ton of its cash and is still aflame as they move to the final closing next year. But the marginal deals done will release some pressure ahead until the posse arrives next spring.
What’s ahead?: Time to move from squirt guns to fire hoses in putting out the conflagrations that have been burning the Para cash for years
The fuzzy corporate speak we have heard this far from Skydance tells us little. It’s understandable. But that time dealing for the takeover is past. Now that the deal is actually done, the Skydance group needs to begin sharing its outlook ahead with its strategy imperatives.
Clearly we don’t know if SKY has a complete, detailed hit the ground running plan with rubber already burning the road. But it is also obvious that a process revealing some major structural moves is long overdue. They remain the reasons why till this day Para fell into its sharp decline.
What must holders go by till now? Well most probably aren’t looking beyond the $15 a share cash tender for half their Class B holdings, and for Class As, $23. All they need to do is stay on the couch, zip a click or two on a website, sit back and wait for the check.
But for those who opt to stick it out and hold the stock to see what these Skydance guys can do besides reaching for the bottomless Ellison treasury might be helpful.
To begin with (apologies to Abbott & Costello) who’s on first?
David Ellison brings mostly promises to the party; we shall have to see. Access to the family treasury is a plus under any circumstances. But our sense is that the designated operational hitter in this game will be Mr. Shell who is named president in waiting. But wait a minute, Here comes Larry.
Shell returns as a big media chief after a year’s hiatus. His successful 2-year tenure at NBCUniversal was cut short to assume a rainmaker position as an executive in the financial firm Redbrid Capital-one of Ellison’s key backers in the Para deal. Shell, 58, is a competent pick-but we now have word that honcho #1 is probably going to be the estimable Larry Ellison himself.
Now,, the man investors had seen as the Oracle Chief as just a bank-roller of the deal in the newco we learn Ellison the elder controls the wheel. He’s the guy with the ultimate control with his 77.5% of the newco equity. So with son David as essentially his wing man and Shell overseeing daily operations, investors now can expect the big moves in restructuring the company once Larry is fully in the saddle next year. Yet, we expect his influence to be felt far before the close.
Above: Rules of the road for the now presumed #1 of the Para newco
This has to be good news for shareholders. The new chief, dependent on his time allocation of course, is a certified visionary and veteran big move operator. He will assume the Top Gun position after the spring 2025 closing and debut of the newco.
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ABOVE: Despite a miss for 2Q, Oracle continues to rise (18% ytd) over the last decade or more with Ellison at the helm. He comes with the deal.
Phase One: PARA’s business model today simply can’t work in the new world of media. Among the many ideas floating around the stock during the turmoil of the SKY run was to see Para’s studio, land and IP library as a viable standalone business.
Remaining holders should support a spin-off of the Filmed Entertainment business should Larry move to spin it off, holding some stock. It is impossible to calculate the accuracy of any movie studio forward. Nobody knows what a slate, say of 10 to 11 films can gross. We do know that over the last four years, Para films have run up about $780m revenue per quarter. That throws off ~$50b in per quarter in OIBTDA of around $175b. If anything around this number is achieved in the 5 forward years, it would make a Para Studios spin off very viable on its own.
Yet, we must include the prospect that Larry, as are many multi-billionaires, beguiled by the movie business for no other reason than its coruscating glamour-which may or may not still exist.
That performance assumes zero about growth simply before other than studio announcements on works green lit ahead. Instead, we use the sample quarter X4 to put a revenue forecast of $3.12B per year on a spin-off. We cite filmed entertainment among Para’s most salable divisions because unlike its most critical business, the CBS network, they face controlled secular decline of audiences but will come to life with blockbusters.
Para has written down over $6.7b of its cable business, its streaming business faces the promise of turning profitable, but will never grow its earning big time because the operational costs, marketing and an overcrowded sector will keep it stuck in the low margin future.
The prospects of strong profitability can only rise with a massive expansion of scale. And awaiting them at the golden gates will be Netflix (NFLX), Amazon (AMZN) and Apple (AAPL), the only companies that can match bankrolls with a revived Para.
Yet, Ellison may well decide to give up the chase to streaming no man’s land, and launch a quest for a buyer, rather than throw more of his billions into the bonfire.
CBS, as are all major broadcast networks, is struggling to hold on. Also, their O/O stations present a tough ad environment. So with many options ahead, Larry and the newco will have plenty of room to make magic for holders who hang in.
Conclusion
No matter the final organization chart of the PARA newco, the shape and direction will be collaborative to an extent, but the big moves will have to pass muster by Larry. He’s done much of this before in the process of building Oracle (ORCL) into a tech giant. But bringing Paramount into the current entertainment ecosystem, still shaky, an even greater challenge.
In the words of our often quoted brilliant screenwriter, William Goldman, when asked about success in movies, he replied, “Nobody knows anything.”
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